Increase in sales, meals taxes aimed at making up for loss of state aid

Pat Tarantino

Wednesday

Jul 29, 2009 at 12:01 AMJul 29, 2009 at 9:14 AM

An increase in state and local meals taxes will have Boston diners digging deeper into their wallets Saturday.

An increase in state and local meals taxes will have Boston diners digging deeper into their wallets Saturday.

State sales and meals taxes will increase from 5 to 6.25 percent Saturday, while a new “local option” meals tax proposed by Boston Mayor Thomas Menino could further increase the meals tax by .75 percent by Oct. 1. Meanwhile, local governments have been given the ability to increase hotel taxes by 2 percent and increasing the combined state/city hotel tax from 12.45 to 14.45 percent.

Lisa Signori, director of administration and finance for Boston, said the tax increases, projected to increase revenue by $18 million in fiscal 2010, are a means to shore up the loss of $90 million in state aid during the past year.

“There’s still a lot of uncertainty out there about Boston’s revenue budget and what will happen with the commonwealth budget as we move through fiscal year 2010,” Signori said.

Although the increase in revenue will account for less than 1 percent of Boston’s operating budget, Signori said the new funds might be necessary as a three-year, $15 million competitive federal grant for policing programs becomes less likely due to the large number of municipalities applying for federal aid.

For restaurant owner John Grasso, the proposed local option is “just another nail in the coffin” for many eateries.

“People aren’t going out as often; they’re spending less, unemployment is up, and this is just one more problem to pile on,” said Grasso, who owns and operates six Halfway Cafés in Massachusetts.

For Peter Christie, CEO of the Massachusetts Restaurant Association, the 2 percent increase in meal costs will not bankrupt eateries, but could open the door for future local tax increases.

“Proponents of this bill will say that 75 [cents] on a $100 tab isn’t a big deal, but now that the vehicle exists, you can bet municipalities will attempt to increase it again. It’s a very slippery slope,” Christie said.

Paul Sacco, president and CEO of the Massachusetts Lodging Association, also weighed in on the issue, stating that 2009’s gloomy weather and fluctuating fuel prices will keep Boston’s tourism rates and hotel prices flat for the remainder of the year.

“Who’s going to the beach or spending time on the 1,500 miles of coastline in the pouring rain?” Sacco said.

Signori stood by the tax hikes, explaining that Boston relies heavily on property taxes and state aid to fill its coffers, and the tax increase will “help diversify Boston’s revenue stream.” Signori also said hotel and restaurants were targeted for tax increases because workers and tourists make up a large segment of customers, allowing the city to pass the cost of city services from residents to people who would otherwise enjoy city services without paying their share.

For Christie, however, the tax will not only affect tourists, but also undercut restaurant profits.

“In fiscal year 2008, restaurants in Massachusetts made $13 billion in sales because that’s what consumer confidence and people’s discretionary funds allowed. Raising the tax by 2 percent doesn’t mean people are going to spend $260 million more; it’s going to come out of our pocket,” he said.

Although the MLA and MRA have opposed the bill, Sacco said business owners realize the importance of municipal funding in ensuring the Boston remains a visitor destination.

“We opposed the tax increase but understand the need,” Sacco said. “This is an issue about teachers that need supplies, about police that need to get paid.”

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